October Market Commentary

Well, we’re still here. Despite the seemingly best efforts of the leaders of the United States and North Korea – the world is still turning. But September was a month of ‘another day, another North Korean rocket flying over Japan’ and it ended with Kim Jong-un threatening to explode a nuclear bomb over the Pacific. Small wonder that South Korea is creating a special military unit with only one aim, which does not bode well for Kim.

Meanwhile, central bankers have warned that, well… they seem to have lost $13tn. The Bank for International Settlements has warned that this amount may be missing from global balance sheets because, apparently, international standards do not require such a trifling sum to be included. The authors of the report say that the debt ‘remains obscured from view’ – which rather makes $13tn sound like your TV remote.

Throw in the devastating effects of Hurricanes Harvey, Irma and Jose and September was a month where it was difficult to find any good news. At least with it being Party conference season, there was hope of some positive policies: although it could be said the Prime Minister was clinging to a life raft with the sharks circling, as she made her major speech.

UK
September saw the Labour Party getting together in Brighton, which could either be viewed as a triumph for Jeremy Corbyn and his ‘government in waiting’ as they outlined a clear vision for a stronger, fairer Britain or a party that would bankrupt the country within three months of taking office, depending on your view.

The Conservatives were in Manchester, as Theresa May sought to re-assert her authority following the disastrous General Election campaign. Having spent virtually all the election campaign deriding Labour’s ‘magic money tree’ Theresa May seems to have, well, magically found one at the bottom of her garden. Student loans, Help to Buy, lifting the public sector pay cap, £1bn to keep the Democratic Unionists onside… Philip Hammond’s Autumn Budget – now scheduled for 22nd November – is certainly going to be interesting.

Away from the Westminster plans and plots, the month started well as figures for August showed that UK manufacturing had hit a four month high, and later in the month it was reported that it had moved up one place in the ‘league table’ to become the 8th largest in the world. Unfortunately, the service sector couldn’t match this progress as the August figures recorded the slowest growth for 11 months.

Nevertheless, UK unemployment continues to fall – it is now down to 4.3%, down from 4.4% in the previous quarter and the lowest level since 1975. However, wages continue to stagnate, and with inflation hitting 2.9% many people are still seeing a fall in real wages.

What of interest rates? The month started with a suggestion from the Bank of England that there would be no rises for ‘at least a year:’ however by the end of the month Governor Mark Carney was expecting a rate rise “in the near term” – which could apparently be as early as November.

…And there was more gloom to end the month as credit ratings agency, Moody’s, downgraded the UK’s credit rating from Aa1 to Aa2, following earlier downgrades by the other major agencies. UK growth for the second quarter of the year was also revised down to 1.5% from an earlier 1.7%.

How did all this translate to the stock market? The FTSE 100 index of leading shares was down just 1% in September, opening the month at 7,431 and closing at 7,373.

Brexit
News for the Brexit part of the commentary this month wasn’t hard to come by. ‘Michel Barnier vows to ‘educate’ UK over consequences of leaving’: ‘May has accepted a £50bn exit bill’: ‘Europe to block Brexit trade talks until December’: ‘May goes to Canada to seek trade deal’… And so it goes on: but as in previous months, the end result seems to be very little progress, despite Theresa May’s speech in Florence.

It was thought that progress might well speed up after the German elections but as you will read below, these have been anything but decisive, and Angela Merkel will have plenty of domestic issues to consider before she thinks about Brexit.

In the same way that the Labour Party are now apparently ‘war-gaming’ a run on the pound should they come to power, so the Government are supposedly doing the same with the prospect of ‘no deal’ by March 2019. It is looking increasingly likely…

Europe
The big news in Europe was the German elections, held on the last Sunday in September. They were largely seen as rubber-stamping another four years as Chancellor for Angela Merkel: four more years with ‘Mutti’ leading Germany and – by extension – Europe.

In the event, the Christian Democrat vote was down nearly 10% to 32.9%: the Social Democrats recorded their worst result since the war, with just 20.5% of the vote, and in third – with 12.9% of the vote – was the right-wing anti-immigration party, Alternative fur Deutschland (AfD).

Where did that leave Merkel? Substantially weaker: the Social Democrats have gone into opposition to lick their wounds, and Merkel is likely to be left with what is scathingly referred to as ‘the Jamaica Coalition.’ Based on the colours of the respective parties, this is a coalition between the Christian Democrats, the Free Democrats (roughly equivalent to the Liberals in the UK) and the Green Party.

Will it work? There could be months of wrangling, with Greens leader Katrin Goring-Eckardt saying in a TV debate, “Naturally there’s a lot that divides us. I’m not sure that we will succeed.” Does this leave a vacancy for a new de facto leader of Europe? French President Emmanuel Macron certainly seems to think so…

Despite this uncertainty, there was good news as the ECB predicted the fastest Eurozone growth since 2007, forecasting economic growth of 2.2% for this year. It’s unlikely this figure will be repeated at Ryanair as the company pulled off one of the biggest PR disasters of recent times, cancelling any number of flights thanks to not organising their pilots’ holidays properly. The bill won’t reach the $30bn that the emissions scandal has supposedly cost Volkswagen but you suspect that the company will take a long, long time to recover.

At least, there were no shades of Ryanair for Europe’s leading stock markets: the German DAX index closed September up 6% at 12,829 and the French market jogged happily along in its wake, rising 5% to finish at 5,330.

US
The damage done to the Caribbean and the southern states in the US by the recent hurricane season has been well-documented. One estimate now puts the repair bill in Texas at $180bn following Hurricane Harvey.

It seems heartless to turn from that to Facebook’s cash mountain – but I am duty bound to report that the company’s revenues and profits soared in the second quarter, with more than 2bn people now logging into the site each month. The firm’s revenues hit $9.3bn for the April to June period, up 45% year-on-year, as profits for the quarter rose to $3.9bn.

It was mixed news for Apple, as they suffered a ‘major data breach’ ahead of the launch of the iPhone X, but then unveiled a phone that was seen as a major leap forward and ‘the future of the mobile phone.’ Or in many cases, the future of parents asking their children for help…

Worryingly, Toys-R-Us filed for bankruptcy protection: with an increasing number of malls threatened with closure over the next five years, you have to ask if this is a straw in the wind – and whether Amazon and other online retailers will now do to out of town shopping what they have done to so many high streets in the US and the UK.

The Dow Jones Index chose to side with Facebook rather than Toys-R-Us, and it rose 2% in September to end the month at 22,405.

Far East
There were two significant events in the Far East in September. In Japan, Prime Minister Shinzo Abe called a snap general election, looking to take advantage of opposition disarray and seeking support for his hard line against North Korea. Abe said the election would be a judgement on his spending plans and his handling of the Korean crisis. The election is due to be held on 22nd October and at the moment Abe and his Liberal Democratic Party have a comfortable lead in the polls. Then again we have seen other leaders with healthy poll leads call snap general elections…

We have written previously in this commentary about China’s mounting debt and credit problems, and in September credit ratings agency, Standard & Poor’s, cut China’s rating by one point from AA- to A+. This was down to worries about the build-up of debt in the country and puts China on the same level as Ireland and Chile.

The downgrade comes just a month before the Communist Party Congress, which is held only twice every decade and sets economic policy for the next five years: at the moment the Chinese Government has a target of 6.5% growth for this year.

Other than that, the rulers in Beijing were in the mood for banning things: bike sharing apps have now been banned in Beijing thanks to traffic chaos and safety concerns, and the government is also planning a ban on both petrol and diesel cars ‘in the near future’ as China looks to curb pollution and boost its electric cars industry.

Boosted by the likely return to power of Shinzo Abe, the Japanese market led the way in the Far East, rising 4% in the month to 20,356. The South Korean market was also up, albeit by only 1% to 2,394, while China’s Shanghai Composite Index was virtually unchanged at 3,349. The Hong Kong market fell back by 1% to end the month at 27,554.

Emerging Markets
One of the interesting things about writing this commentary is how a story which seemed crucial at the beginning of the month has been almost completely forgotten about by the end of the month. So it was in Emerging Markets, as September started with the BRICS summit – a meeting of the leaders of Brazil, Russia, India, China and South Africa. Chinese leader Xi Jinping told the delegates that an ‘open world economy’ was needed, with ever-increasing trade liberalisation. He told delegates that, “The development of emerging markets and developing countries won’t touch anyone’s cheese, but instead will diligently grow the world economic pie.” With China committed to massive investment in Pakistan you suspect that China and India may be squabbling over rather more important matters than pie and cheese in the long term…

Away from the kitchen and on the stock markets it was a good month for the Brazilian market, which was up another 5% to 74,294. The Russian index also did well as it attempts to regain some of the ground lost earlier in the year: it was up 3% in September to finish at 2,077. Not such a good month for the Indian market though, which closed down 1% at 31,284.

After an excellent year for the ‘And finally’ section of this report, September was a disappointing month. No-one accidentally locked himself in a cash machine, no Chinese toilets demanded facial recognition before they’d dispense loo roll and – only just back from holiday – there was no need for the new leader of Europe to spend thousands on make-up.

But there was an encouraging story from the world of technology, where the winner of the UK’s James Dyson Prize for Innovation was engineering graduate Ryan Yasin and his concept of ‘clothes that grow with your children.’ This is fantastic news for hard-pressed parents – and not just parents of toddlers. September is the month when many teenagers start university: they face the harsh reality of student loans and their parents face the equally harsh reality of ‘kitting them out’ with pots and pans and possibly even a textbook or two.

But at least new clothes won’t be an issue if Mr Yasin’s prototype clothes go into production. Freshers’ Week should be something to behold as everyone wanders round in their Thomas the Tank Engine tops and Mr Tickle trousers…

Your options at retirement

When you reach your retirement age, it’s normal to start thinking about just what you’ll do with the money you’ve saved during your working life. It’s likely that you’ll have saved the bulk of your money in a pension. You may even have multiple pensions; some small and some large.

Too late to start saving?

Not beginning to save towards your retirement until you reach your fifties would not so long ago have been considered leaving matters far too late to put anything meaningful away for your life after work. Previous generations saw building a pension as something to do over an entire career, with contributions throughout your working life coupled with investment growth being the only way to ensure your retirement pot was substantial enough to provide for you throughout your retirement.

However, whilst compound interest still means that anything put away at the start of your career will see some serious growth by the time you need it much later in your life, the reality today for many young people is that they simply have very little to invest when they first begin work. Many may find that they won’t be able to begin saving seriously until they reach middle age.

The reasons for this are several. First of all, your wages are statistically likely to reach their peak for women during their forties and for men in their fifties. Secondly, as the average mortgage term is twenty-five years, most people who bought their home in their twenties are likely to have finished paying it off by the time they reach their fifties. A third key reason is the declining cost of raising children. Whilst it’s unlikely that you’ll stop giving them financial support completely, if you’ve had kids in your twenties or thirties it’s probable that the cost of providing for them will have gone down a great deal by the time you’re heading towards 50.

With considerable tax relief on both ISA investments and pensions, it’s now possible to build a healthy retirement fund even if you only start saving in your fifties. For example, someone with no existing savings, earning £70,000 annually, who started saving the maximum permitted yearly amount of £40,000 at age 50 could amass a pension pot of £985,800 by the time they turn 67, assuming a 4% annual return after charges.

£40,000 a year might sound like a huge amount to save every year, but this amount includes the generous tax relief enjoyed by pension savings. Our £70,000 earner would only need to put away £27,000 of their own money in order to reach the £40,000 contribution, whilst a basic rate taxpayer would need to contribute £32,000 to achieve the same.

So, whilst it’s sensible to begin saving as early as you can, it is possible to begin putting money away when you reach middle age and ensure you have enough to provide for yourself later in life. The last ten years of your working life can reasonably be seen as some of the most important in terms of preparing for your retirement.

3 financial fears this Halloween and how to overcome them

With Halloween only a few weeks away, it’s time to be prepared for scary movies on TV, ghosts and ghouls trick-or-treating at your door and listening extra carefully for things that go bump in the night. But whilst these fears might be unfounded, it might be a good time to think about what frightens you in your finances and, more importantly, how to overcome those concerns. Keep reading for our top financial fears and what you can do to banish them this October.

  1. Losing big on your investments – It’s all too easy to think that investing your money in stocks and shares or even in a savings account is a huge risk, thanks to the media reporting the times when people have indeed lost huge sums. But it’s important to remember that the people who make sensible investments and successfully grow their money are unlikely to be covered in the news. Big losses happen in the short term to those trying to make money fast. Just remember that buying and holding long term means your money is more likely to remain safe and work for you over time.
  2. Having a poor credit score – Whilst having a good credit score is important, unless you’re planning to apply for credit or make a significant purchase then it’s not something you should be losing sleep over. Even then, if your score isn’t as high as you want or need it to be, there are ways to improve it that don’t take too long. The important thing to remember is that credit scores change all the time, so constantly worrying about yours simply isn’t worthwhile.
  3. Becoming overwhelmed by debt – If you’ve managed to get yourself into debt through loans, credit cards or a sizeable mortgage, working your way to being debt-free again can feel like an impossible task. But there are always actions you can take to help yourself cope with debt. Speak to your lenders to see if you can negotiate more manageable payments. Work out how much you’d need to pay each month to clear your debt in an achievable amount of time, such as five years. Finally, make sure you don’t take on further debt, otherwise you’ll simply be undermining all of your efforts.

September Market Commentary

Introduction
It is hard to start this commentary anywhere other than North Korea – or maybe crouching in Japan as a North Korean missile passes overhead. At the beginning of the month, Kim Jong-un threatened to bomb Guam, the US territory in the Western Pacific, and by the end of the month air raid sirens were sounding in Japan’s Hokkaido Island. Prime Minister Shinzo Abe described North Korea firing the missile as an “unprecedented” threat to his country. Wall Street’s ‘fear index’ unsurprisingly jumped during the month as President Trump intimated that talking to Kim Jong-un wasn’t his first option.

Donald Trump’s month had begun by imposing new trade sanctions on Russia – described as a “full scale trade war” by Russian Prime Minister Dmitry Medvedev – and it ended with him visiting Houston after it had been hit by Hurricane Harvey, with estimates putting the cost of the clean-up operation at $100bn.

These worries were nothing though, compared to the trials and tribulations of new French leader Emmanuel Macron – barely three months after being elected, he was facing widespread criticism for his planned labour reforms and… his make-up bill. More of that later…

UK
The month didn’t get off to the best of starts in the UK. The Financial Conduct Authority voiced its concerns about the increasing levels of unsecured consumer debt, especially on car loans, and figures for July showed that car sales had slumped by 9.3% – a figure which will presumably worsen if there is a clampdown on loans.

Meanwhile, the construction sector slowed to its weakest rate of expansion since August of last year and the pound fell as the Bank of England opted to keep interest rates on hold. By the end of the month, it was trading at $1.2923, down 2% for the month as a whole.

While our glass is half-empty, house prices were down for the fourth quarter in a row – the first time that has happened since November 2012 – and figures for June showed that the UK trade gap had widened. The difference between the goods and services we import and those we export widened by £2bn to £4.6bn according to figures from the Office for National Statistics – the biggest gap since September last year.

…And let us now look at the glass from a different perspective. Despite the construction sector slowing down, it was still taking on new people and this – combined with an increase in transport jobs – saw UK unemployment down by 64,000 to 1.49m for the three months to May – the lowest level for 42 years.

There was also good news for the beleaguered UK high street as UK retail growth continued, helped by stronger spending on food. The figures for July showed a 0.3% increase on June’s figures. Clearly plenty of the food was being bought at Lidl, which overtook Waitrose to become the UK’s 7th largest supermarket group.

The government had its first budget surplus in July for 15 years as more money came in from self-employed tax receipts. Maybe Chancellor Philip Hammond ordered a fleet of Aston Martins for his cabinet colleagues – the company increased its profit forecasts for the second time this year after a record six months. And UK car production was up as a whole, despite the falling sales numbers: 136,000 vehicles were made in British factories in July – up 8% on July 2016.

So how did the stock market view the glass? Half-full or half-empty? The former – but only just. The FTSE 100 index of leading shares was up 1% in August, closing the month at 7,431.

Brexit
We have just had another month of Brexit negotiations. Or have we? David Davis – our man in charge of exiting the EU – has claimed that ‘good progress has been made.’ His EU counterpart, Michel Barnier, has taken a rather different tack saying that the UK was “demanding the impossible.”

Meanwhile, Jean-Claude Juncker, the President of the European Commission, said that none of the UK’s position papers were “satisfactory” and warned that there would be no discussions of a free trade deal until progress was made on the so-called Brexit bill, the border with Ireland and the rights of EU citizens. David Davis responded that the EU needed to show ‘imagination and flexibility’ – two words which have not previously been associated with the Commission.

Back in the UK, the war of words continued: a group of pro-Brexit economists argued that removing all trade tariffs and barriers would generate an annual £135bn boost to the UK economy. Those in favour of a ‘soft’ Brexit continued to push for membership of the single market as a transitional arrangement after Brexit, which (in case you have forgotten in all the excitement) is scheduled for March 29th 2019.

Meanwhile, Prime Minister, Theresa May, declared that she wanted to fight the next election (a move greeted with equal measures of scepticism and horror within the Conservative party) and jetted off to Japan to begin talks on a post-EU trade deal. Back in Brussels, the boys continued bickering, as International Trade Secretary, Liam Fox, said the UK would not be ‘blackmailed.’ Across the table, Michel Barnier complained that so far the talks had made “no decisive progress.”

You can only hope that more progress will be made after the German elections in the middle of this month: unfortunately, we then have the UK political conference season and its attendant machinations and posturing. Meanwhile, the steady flow of businesses contacting Frankfurt estate agents will continue…

Europe
August – the month when Europe traditionally goes on holiday. That certainly seemed to be the case this year with some of the more interesting stories coming from countries we do not usually cover in the Bulletin.

Readers may remember the WannaCry ransomware attack in May, which hit the British NHS among companies and organisations worldwide. This was followed by a similar attack called Petya, which originated in the Ukraine. Subsequently modified, renamed NotPetya and targeted globally, the attack did millions of pounds worth of damage.

It was reported in August that the Danish shipping line Maersk, had suffered estimated losses of $300m thanks to the NotPetya virus – and that there had been a subsequent knock-on effect on the worldwide shipping industry.

August also brought the news that Kolos – a Norwegian/US company – plans to build the world’s largest data storage centre at Ballangen, inside the Arctic Circle. The reason? The cold air and abundant local hydro-power will keep costs down. Meanwhile, Estonia announced plans to issue the first government-backed cryptocurrency, with the launch of the Estcoin intend to compete with the soaring popularity of other cryptocurrencies like Bitcoin.

Cyber-attacks, huge investment inside the Arctic Circle and a country with its own cryptocurrency – three indications of the way the world is moving in 2017…

Back in the more traditional world, the euro hit an 18 month high against the dollar (at the time of writing it is worth $1.19) and French voters were expressing fierce opposition to new President Emmanuel Macron’s proposed reform of the labour laws. But as you will see below, M. Macron had more pressing problems…

Meanwhile, on Europe’s stock markets both the German and French indices were in holiday mood, doing more or less nothing in the month. The German index drifted down 1% to close at 12,056: the French CAC 40 index was even more laid back, falling just eight points to 5,086.

US
So did anything happen in the US that didn’t concern the President? Quite a lot…

The month got off to a positive start with the economy creating 209,000 jobs in July – ahead of expectations and helped by a wave of hiring in the hospitality industry. There was also good news for the US motor industry as Toyota and Mazda announced plans to team up and invest £1.6bn in a new car plant which will produce 300,000 vehicles a year and create 4,000 jobs. Electric car maker Tesla also said it was aiming to raise $1.5bn to fund its Model 3 car.

Staying with the ‘old economy’, Walmart announced a link-up with Google as Amazon bought Whole Foods and immediately embarked on an aggressive raft of price cuts – some prices were cut by as much as 43% – which sent shockwaves through grocery shares around the world.

Apple’s profits for its third quarter were up 12% to $8.7bn, with the company boosted by Apple Pay, the App Store and Apple Music. Not to be left out, Facebook made a move into dedicated video, which will see it competing with YouTube and, ultimately, TV networks.

The world’s central bankers gathered for their annual get-together at Jackson Hole, Wyoming, possibly to hear Janet Yellen speak as Chair of the Federal Reserve for the final time as the President is rumoured to want to replace her.

…But everything was overshadowed at the end of August as Hurricane Harvey struck Houston, causing catastrophic floods. The situation may yet worsen: at the time of writing the storm was heading towards Western Louisiana.

Like many of the world’s leading markets the Dow Jones index had a quiet month, finishing up just 57 points at 21,948.

Far East
China had to take some action in response to North Korea’s continued missile tests and in the middle of the month it announced it would stop importing coal, iron and seafood from the country, as it implemented UN sanctions. In theory this should have a dramatic effect on North Korea’s economy, which has grown significantly of late on the back of exports to China. We shall see…

China had other problems as the International Monetary Fund warned (again) about the country’s credit boom, saying that China’s credit growth was on “a dangerous trajectory.” Chinese consumers certainly seem to be spending with online retail giant Alibaba, which posted a 56% rise in quarterly revenue (in sharp contrast to the traditional US retailer Walmart, which saw a 23% fall in net income).

It is a difficult balancing act for the Chinese central bank: there were further worries as the rate of growth for China’s industrial companies slowed down. If that continues there will surely be pressure to allow further credit in order to maintain demand.

There were worries of a more personal kind in South Korea for Samsung’s billionaire heir-apparent Lee Jae-yong who was jailed for five years, convicted of bribery in a scandal which also saw the impeachment of South Korea’s former president.

Despite worries about credit growth, it was a good month for China’s Shanghai Composite share index, which was up 3% in August to 3,361. The Hong Kong market was also up, closing the month at 27,970 for a rise of 2%: it is now up 27% for the year as a whole. August was less good, though, for the South Korean market – down 2% at 2,363 – and for Japan, where the ‘dangerous trajectory’ they were worrying about was not Chinese credit but North Korean rockets. The Japanese index closed the month down 1% at 19,646.

Emerging Markets
It was a remarkably quiet month for the three major emerging markets on which we report. These days ‘quiet’ means good news for Brazil’s politicians as it was a month in which none of them were impeached or arrested. Maybe the Brazilian stock market took heart as it shot up 7% in August to end the month at 70,835. It was a good month for the Russian stock market as well – up by 5% to 2,022 – although it remains nearly 10% down for the year as a whole. Finally, a rather less successful month for the Indian market, which fell back 2% to end August at 31,730 – but still 19% up for the whole of 2017.

And finally…
It appears chocolate bars are definitely getting smaller these days, compared with a time when it took three people to even attempt to lift a Wagon Wheel…

That unfortunate trend reached its nadir in August with the news that Nestle are to introduce three new versions of the Walnut Whip… without a walnut. The new ‘Whips’ – sadly without the Walnut prefix – will be “available in Caramel, vanilla and mint” said the proverbial spokesman.

Equally new is French President Emmanuel Macron, who has certainly ‘whipped’ up a storm with the revelation that despite being in office for only three months he has managed to spend €26,000 on make-up – but the beautiful Monsieur Macron is not alone…

So far, the French leader has settled two bills for €16,000 and €10,000 from the public purse, but these pale into insignificance compared to his predecessor Francois Hollande’s €10,000 a month on a personal hairdresser. Bill Clinton was famous for keeping Air Force One waiting on the tarmac while he received a haircut from a Beverly Hills stylist known as Christophe – but what about British politicians? According to a Telegraph report from 2005, quoting a parliamentary written answer, Tony Blair spent £1,800 of taxpayers’ money on make-up and grooming. That’s a national disgrace: just £300 a year. It’s barely the cost of a Walnut-less Whip a day…

The upsides and downsides of downsizing

If your family has grown up and flown the nest and you’re moving closer to retiring, it’s likely that you’ve at least thought about downsizing your home. For some it can be for practical reasons, for others it might be a desire to be closer to their children if they’ve relocated, for others still it might simply be the desire for a change of scenery as they move into the next chapter of their life. But there are pros and cons to downsizing which need to be considered before you make what is always going to be a fairly major personal and financial decision.

The potential benefits of downsizing can be numerous. Living in a smaller home means you’re likely to save money on energy bills, house insurance, council tax and many other costs, allowing you to spend more of your pension income on enjoying life after work. It can also make looking after your home much easier so that you’re spending less time and effort on cleaning, maintenance and repairs as you get older.

In the current economic climate, many older people are choosing to downsize in order to free up funds. For some, this might be with the aim of boosting their own nest egg; for an increasing number of others, this is done in order to help their children get on the property ladder themselves. A loan or gift from the Bank of Mum and Dad has to be funded somehow, and if much of your capital is tied up in your home, downsizing often seems like a good way of obtaining the funds needed for a deposit on a first home.

However, just as the housing market is making it increasingly difficult for first-time buyers to secure a home, it’s also making it more and more challenging for those who want to downsize to be able to do so. Many who want somewhere smaller to make maintaining their property easier are finding that the cost of moving simply means staying put and paying for a cleaner or handyman is the more sensible option. For others, the shortage of houses means that finding a smaller property which suits their needs whilst providing the financial benefits is simply too tall an order in 2017.

So, whilst there are definite potential benefits of downsizing which can potentially help you and your family as you reach your retirement, it’s also worth remembering that those positives are not guaranteed. Moving house is both a major financial and emotional consideration at any point in your life, so make sure you have considered exactly what you will get out of downsizing before making the decision to do so.

Kids off to Uni? Congratulations – but have you been saving enough?

Recent figures from the Institute of Fiscal Studies suggest that the average total debt incurred by today’s university students over the duration of their studies amounts to £51,000. The new figure comes as those in higher education see the interest rate on student loans rise to 6.1% in September, despite the Bank of England base rate remaining at its lowest ever figure of just 0.25%. The rise means that students will now typically have mounted up £5,800 of interest by the time they graduate. Total student debt in the UK has now risen to £100 billion, a figure higher than the nation’s total credit card debt.

The rising cost of higher education perhaps makes it unsurprising that 40% of parents are now beginning to save towards future university costs before their children have even been born, with one in five hoping to have saved £2,000 by the time the baby arrives. Frustratingly, however, around two thirds of those who are saving are doing so by simply placing the funds in an ordinary savings account, meaning their money is earning them very little in interest.

An alternative option to consider is a Junior ISA (JISA) in the child’s name, which they can then access when they turn 18. The account currently allows £4,128 to be saved every year, and the best rate market rate for a cash JISA offers 3.25%. Saving the maximum amount at that rate for ten years would result in a nest egg of £49,427 tax free to cover university fees with plenty left over for other expenses.

Whilst a cash JISA offers dependability, a stocks and shares JISA is also worth considering as the potential reward on your investment can be higher. Both types of JISA can be opened at the same time with the allowance shared between them, so spreading your savings between the two can pay off in the long run.

Using your pension to save towards your child’s university education is also an option, thanks to the pension freedoms of recent years. With the ability to take a lump sum to put towards fees and other costs when you turn 55, pensions offer a tax-efficient way of putting away for both your child’s future and your own. This is an option which needs careful planning, however, as you’ll need to make sure you have enough for your retirement before paying for your child’s education.

For those able to do so, it may also be worth speaking to your own parents about helping towards their grandchildren’s university costs. Rather than leaving money to a grandchild in their will, a grandparent might consider gifting towards fees and other expenses or placing the money in a trust, reducing their inheritance tax liability and allowing their grandchild to benefit from their legacy when they really need it.

How to combine work/life balance, job satisfaction and retirement

Two of the biggest concerns faced by workers when they reach their 50s and 60s are those of achieving job satisfaction and a work/life balance. Recent studies have offered fresh insight into the reasons behind these issues and the best ways to tackle them.

One study conducted by economists at the University of Southern California and California State University explored how work/life balance issues affected those aged between 51 and 79. 14% of women in this age bracket who retired earlier than they intended to did so because they had to care for a spouse or other family member who experienced a health scare. However, this was far less often the case in men, perhaps due to them being more likely to ‘outsource’ the care their spouse needed. In contrast, women nearing retirement age make more adjustments than men when it comes to the health of a partner, taking on more of the caregiving role themselves.

The report also found that a poor work/life balance was also more likely to make women retire than men. Men are also more likely than women to continue working part-time beyond retirement age if their spouse is still working. Women stated they were more likely to continue working full-time in this age bracket if their employer offered health insurance, to the point that researchers described it as a ‘critical pull factor’ in women.

A second study looked at issues around job satisfaction and its relationship to working conditions. The research, carried out in collaboration between Harvard University’s Medical School, the University of California and the nonpartisan RAND Corporation, found that workers nearing retirement age valued other elements of job satisfaction aside from pay and benefits.

Most prominently, those over 50 look for work flexibility, meaningful work, the chance to develop transferable skills, and a work environment which feels supportive. The researchers found that these intangibles were more important than money in older workers’ decisions on whether to continue working: having a flexible working schedule had the same impact as a 9% pay increase, whilst a switch from a physically demanding job to one which involved only moderate physical work was equivalent to a 20% pay increase.

If you’re still employed and nearing your 50s or 60s, or you’re already there, think about what’s most important to you when making decisions about whether you want to retire or carry on working full-time. It’s likely that money will be further down your priority list at this stage of life, so let flexibility, job satisfaction and the chance to spend time with your loved ones take precedence.

August Market Commentary

July got off to the best possible start when Janet Yellen, Chair of the US Federal Reserve, announced that there would be no more financial crises “in our lifetime.” Speaking on a trip to London, she said that the reforms of the banking system since the 2007 to 2009 crash had “minimised the risk of a similar disaster happening again.” Phew, that’s alright then. And if you’re reading this commentary, Ms Yellen, just skip over the bit about Italy…

Sadly, the word ‘crisis’ isn’t just confined to banking. July was the month when Kim Jong-un got a little feisty with an ICBM launch at the beginning and end of the month. The Washington Post described the first test as ‘a grave milestone’ and the regime in Pyongyang claimed the second test brought ‘the whole of the US within range.’ At the beginning of August, CNN was reporting ‘unprecedented levels’ of North Korean submarine activity: the situation is only going to get worse.

In fact, there was plenty to worry about in July. Lloyds of London warned that a global cyber-attack could cost the world economy $53bn, there were simmering tensions between China and India and the IMF downgraded its growth forecasts for both the UK and the United States. Meanwhile, at the G20 summit in Hamburg President Trump fell out with all the other world leaders over climate change. Then he went back to Washington to sack most of his administration…

Despite all this, July was by and large a good month for world stock markets, with three of the markets we cover making appreciable gains and none seeing significant falls.

UK
There was mixed news for the UK economy during July. As we reported above, the IMF downgraded its forecast growth for the year, cutting it from 2.0% to 1.7%. There was also bad news on productivity – the constant theme running through George Osborne’s Budget speeches – which the Office for National Statistics reported had dropped back to pre-financial crisis levels.

Figures for May showed that UK manufacturing had fallen – although this was largely due to a 4.4% drop in car production – and consumer spending had its worst quarter since 2013 in the three months to June, with expenditure dropping 0.3% year-on-year.

Against this, unemployment fell a further 64,000 to 1.49m, bringing the unemployment rate to 4.5% – the lowest since 1975. The number in work rose to 32m, the highest figure ever recorded and up 324,000 on the previous year. London remains Europe’s leading tech hub and both Google and Amazon have recently announced plans for substantial new investment in the city.

Even retail sales gave a glimmer of hope (despite the downturn in consumer spending) as sales rose 0.6% in June for a quarterly jump of 1.5%. And having surged to 2.9% in May, inflation dropped back to 2.6% in June, helped by lower fuel prices.

The UK mirrored the example set by France (see below) in announcing that new petrol and diesel cars will be banned from 2040. BMW followed this announcement by revealing that its new electric Mini will be built in Cowley – giving a huge boost to the car industry and the West Midlands.

With economic growth in the second quarter of the year edging up to 0.3% from the 0.2% seen in the first quarter, it is probably fair to say that the UK ended July with its glass slightly more than half full. That was the view taken by the FTSE-100 index of leading shares, which closed the month up 1% (and 3% for the year as a whole) at 7,372. Helped by fears that a rate rise in the US will now be delayed, the pound ended the month at $1.3224 – it is now up by 7% against the dollar for the whole of 2017.

Brexit
Do you remember when you were at school? The teacher would go out for five minutes, tell you to carry on with your work and the class would immediately descend into chaos.

In July, that’s how it was with Her Majesty’s Government. Theresa May went on holiday and the class immediately started fighting over Brexit. Philip Hammond seemed to favour a never-ending transition period after leaving the EU and ‘friends of Boris Johnson’ muttered darkly in corners. Ultimately, 10 Downing Street announced that free movement would end in March 2019, but you really do suspect that no-one has any idea.

Business organisations – speaking via the CBI – definitely want some sort of transition deal after Brexit, but credit ratings agency, Moody, suggested that there was now a ‘substantial probability’ of no deal being reached. Given the fact that all 27 members of the EU will need to agree the deal and there is just 19 months to go until March 2019 that view is looking increasingly credible. With Europe now largely on holiday for a month and then the German elections due in mid-September, it is easy to see it being October before any significant progress is made.

Europe 
As in the UK so it was in France, with Ecology Minister Nicolas Hulot announcing a ban on the sale of any car that uses petrol or diesel fuel by 2040. There is some way to go however: at the moment, hybrid vehicles make up 3.5% of the French market, with pure electric vehicles accounting for just 1.2%. The announcement was part of a renewed commitment to the Paris climate deal, with Hulot saying that France planned to become carbon neutral by 2050.

However, both the UK and France were beaten to the punch by Volvo, with the Swedish-based, Chinese-owned company announcing that all its new models will have an electric motor from 2019. Geely, Volvo’s Chinese owner, has been quietly pushing ahead with electric car development for more than a decade and now plans to sell one million electric cars by 2025.

There was good news in Spain, as the economy grew by 0.9% in the second quarter of the year, finally taking it back to the size it was before the credit crunch of 2008. But there was less good news in Italy – this is the bit you might care to skip, Ms Yellen – where CNBC described the Italian economy as a ‘basket case.’ The country has €2tn of public debt, which is around 133% of the country’s GDP and – as we have reported in previous commentaries – several of the country’s banks have needed rescuing, burdened by loans that will simply never be repaid. ‘No more financial crisis in our lifetime’ is a laudable aim, but it reckons without the Italian banks.

…But let us leave Europe with our glass half full: the unemployment rate in the European Union has fallen to 9.1% – the lowest level since February 2009.

The major European stock markets were both down in July, but not by any significant amounts. The German DAX index fell 2% to 12,118 while the French stock market dropped just 1% to close the month at 5,094.

US
Let’s start by sparing a thought for Amazon boss, Jeff Bezos, who for one glorious day in July was briefly the richest man in the world as Amazon shares rose. Then they released disappointing figures, ungrateful investors sold the shares and poor old Jeff was back in second place, grubbing along on $89bn and still behind Microsoft boss, Bill Gates.

Not that July was a great month for Microsoft as it announced plans to cut ‘thousands’ of jobs worldwide in a bid to get its cloud computing business to compete more successfully with Google and – you guessed it – Amazon.

In the wider US economy, though, there was good news on US jobs as figures for June showed 220,000 new jobs created and unemployment remaining low at 4.4%. However, that was countered by bad news on retail with sales down by 0.2% for the month, against an expected 0.1% rise. Coupled with inflation falling to 1.6% this led many commentators to speculate that a future rise in interest rates would be postponed.

Google’s bottom line was hit as the company was handed a $2.7bn fine by the EU for promoting its own shopping comparison site at the top of search results – but that is just petty cash for Facebook, where advertising revenues for the second quarter climbed to $9.3bn with more than a quarter of the world’s population now logging onto the site each month.

There was even better news for the US at the end of the month as figures for the second quarter showed that the US economy had bounced back from weak growth in the first quarter, growing at an annualised rate of 2.6% between April and June. No surprise then that the Dow Jones Index finished the month up 3% at 21,891.

Far East 
The main story in the Far East was the growth of the Chinese economy in the second quarter of the year, which came in at 6.9%. That is equal to the growth in the first quarter and well ahead of the official target for the year, set at 6.5%.

Clearly, plenty of lenders are confident that the Chinese economy will continue to grow as figures from the Bank for International Settlements showed a surge in lending to China and Chinese companies: international banks lent $92bn to China in the first quarter of the year, well up on the same period in the previous year.

Woe betide us all if the Chinese economy ever slows down, but in the meantime there was no slowdown at Samsung as the South Korean tech giant reported record profits thanks to a surge in demand for memory chips. Profits were £9.3bn for the three months to June, up 72% on a year earlier.

China announced that it will now allow rice imports from the US – watch out for President Trump sacking his Rice Commissioner any day now – and also unveiled plans for a new ‘unhackable’ internet. To be centred on the town of Jinan, some 200 users from the military, government, finance and electricity sectors will be able to send messages secure in the knowledge that only they are reading them. No doubt that will be seen as a challenge by North Korean hackers…

As well as his successful missile tests, there was more good news for the Supreme Leader when figures showed that the North Korean economy had grown at its fastest rate for 17 years, largely based on mining, energy and exports to China. It is easy to see where North Korea is spending the money, and the month ended with more worrying news as China and India exchanged a war of words over disputed territory on the Doklam Plateau in the Himalayas, which is claimed by both China and Bhutan. China warned India – which is backing Bhutan in the dispute – that it will defend the territory “at all costs”.

Away from all the squabbling, what happened on the Far Eastern stock markets? The Chinese and Hong Kong markets both enjoyed a good month rising 3% to 3,273 and 6% to 27,324 respectively. The Japanese index was down 1% at 19,925 and the South Korean market barely moved – finishing just 11 points higher at 2,403. On a year-to-date basis, both the South Korean and Hong Kong markets have done exceptionally, with respective gains of 19% and 24%.

Emerging Markets 
For once a quiet month in the Emerging Markets section with – you will find this hard to believe – no Brazilian politicians being arrested for corruption. Instead, we will simply concentrate on reporting some encouraging performances on the major stock markets, with all three of the markets we cover up in July. The Russian index – after a very disappointing first half of the year – was up 2% to 1,920: the Brazilian market was up 5% to 65,920 and the Indian index up by a similar amount to 32,515. The Indian stock market is now up by 22% for the year as a whole.

And finally 
July was another fine month for the ‘And finally’ section of this commentary, beginning with a Texan contractor (understandably he preferred not to be named) who trapped himself inside a Bank of America ATM whilst changing the lock. He was rescued when a customer tried to withdraw $100 and instead received a note saying, ‘Please help, I’m stuck in here.’ He naturally thought it was a joke, but on failing to spot any TV cameras and hearing a faint voice coming from the hole in the wall, the customer decided to call the police…

…Never mind, perhaps machines will take over from those useless humans. Or maybe not. A security robot in Washington was tasked with patrolling the foyer of an office building. Instead, it patrolled itself straight into the building’s fountain and ‘drowned.’ So much for 21st Century technology. ‘We were promised flying cars,’ wrote one observer on Twitter, ‘Instead they’ve given us suicidal robots.’

Never mind, the makers of the robot can always console themselves with a cup of tea and Kit Kat – unless they happen to be in Japan. Nestle have opened a new factory there to make ‘exotic Kit Kats’ for which there is apparently a booming market in Japan. The new factory will make a range of flavours – among others – green tea and wasabi flavoured – maybe not to everyone‘s tastes..!

Sources

Planning for the best time of your life

Whether you’re nearing the start of your retirement or you’ve still got a few years of work ahead of you, it’s likely that you’ve already started planning this next significant phase in your life. But no matter how much you read, how many numbers you crunch and how many pounds you put away, you might still find yourself constantly adopting a pessimistic view on what should be the period of your life set aside purely for you to enjoy yourself. Psychologists describe this as “awfulizing” – focusing on everything that could go wrong, to the point of forgetting about all the positives that are likely to await you.

It’s a feeling that many retirees describe having in the countdown to finishing their working life. It’s often not a rational response: even those who have saved plenty for their retirement, mapping out the likely eventualities and ensuring they have a financial safety net, can find themselves overwhelmed – panicked even – by the realisation of the huge amount of free time and opportunities which will soon become available to them. A little bit of worry about the unknown is natural, but it’s when this worry blocks your path to achieving your retirement dreams that it develops into full-on awfulizing.

So, if you feel yourself slipping into awfulizing, how can you overcome it? It’s personal to everyone, but there are two steps. The first is to take ownership of those things within your control. Sound financial planning and taking some professional advice should be at the top of this list, as without enough money to see you through your retirement, your imagined fears may well end up as a reality. Being open and honest about this with family is a good idea to ensure that your plans and commitments once you retire are known and understood by everyone who might be affected.

Having taken care of what you can control, the second step is to address those things that you can’t. Accepting that some eventualities simply can’t be planned for is essential to reduce your awfulizing tendencies, but in order to banish them completely you need to become comfortable with uncertainty. View your retirement as a story that hasn’t yet been written rather than a plan from which you can’t deviate. As long as you balance management of the elements you can control with acceptance of those you can’t, you should find yourself free from the awfulizing mindset that can threaten your enjoyment of the best time of your life.